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Global Agribusiness

Monthly commentary from our Agribusiness experts around the Globe. October 2014

Contents
Regional views Did you know? Publications Calendar of events Prices Global Agribusiness contacts 2 8 11 13 14 21

Regional views
Overview
With teams around the Globe, this document sets out to give a flavour of what our local agribusiness experts are observing in their territories. This month we are reminded of the ever present impact of volatility on Global agriculture. We have seen significant falls in dairy commodities, grains and oils in 2014 with coffee soaring in the opposite direction on the back of a drought in Brazil. The moves have happened quickly (e.g dairy down over 50% in New Zealand since February 2014 and coffee spot prices up over 30% since August 2014) and this can be difficult for farm families or small holders to deal with. For example in the UK, dairy farmers have taken to public protests and blockades. At PwC we are bullish on the long term prospects for agriculture given Global population and wealth trends however we also recognise that this future optimism can be meaningless to a farmer when short term production costs exceed selling price. Agriculture is a volatile industry and participants have to put in place their own strategies to deal with this which are right for them, be it selling forward or hedging for budget certainty, insuring where possible against crop loss, keeping a buffer of cash or liquid assets which can be quickly released to sustain a business when margins are eroded or having the flexibility to switch production out of loss making commodities. We are fortunate to live in an age when there has never been more real time data available to individuals to assist them in making these decisions and we would urge every agriculture business to have a risk management strategy as a core part of its business plan. However, every cloud has a silver lining: reduced corn prices have benefited livestock and poultry farmers as feed prices have reduced which will eventually be passed onto consumers. Reduced dairy prices will also stimulate demand and therefore the cycle starts all over again. PwC has an in house team which advises corporates and institutions on managing commodity risk: this team has extensive experience of dealing with agricultural commodities. Please feel free to contact any of the PwC contributors to this month’s publication.
Mark James
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Argentina
Grain storage This October, the first International Conference on silo bag grain storage capacity in fixed installations, the farmer’s need for on farm storage, the ability to delay grain selling to reduce freight costs and obtain better prices are some factors that motivated the adoption of the silo bag in the 90s. In recent years, due to the jump in grain production, the use of the silo bags increased considerably in Argentina to reach nearly 40 m tons stored using the method. This method of grain storage has applications around the world where local infrastructure is unable to cope with peak supply of grains during harvest. As the agriculture industry continues to expand in emerging markets and infrastructure development catches up, unique innovations such as this help farmers to minimise losses and maximise returns from their crops. Biofuels The Secretary of National Energy issued a resolution which cut export taxes on biodiesel from 21% to 11% which was well received in the productive sector since the industry was working with a high degree of idle capacity. Mariano Tomatis Gustavo Barrichi

Feed currently levied on Australian dairy products in China so the Government is focused on negotiation of a free trade deal, such as those with South Korea and Japan, to boost Australian exports. Beef Last financial year saw the live cattle export trade soaring past AUS$1bn in value with just over 1.1m head of cattle shipped. This equates to a 79% increase on animals shipped against the 2012-13 year, the increase is driven by a doubling of demand from Indonesia, which took roughly 625,000 head, and the emergence of Vietnam as a major destination for the trade. The Vietnamese trade is driven by demand from China, which is draining the domestic herds of surrounding countries in its new appetite for beef. China itself also drove a six per cent increase in shipments of Australian dairy cattle to 92,629 head, worth AUS$200 m, as China continues to build its domestic herd. The main cattle regions of Australia are currently undergoing severe dry conditions and this may impact exports in the short term. Craig Heraghty The National Association of the Brazilian Animal Feed Industry (Sindirações) reported that Brazil has produced 31.5 m tons of animal feed in the first six months of 2014, an increase of 2.4% compared to the same period last year. The main reason for the increase is due to improved demand due to lower prices. Agricultural credit At the beginning of the 2014/15 growing season there is a considerable increase in the uptake of credit by farmers to fund working capital requirements. This is in spite of lower returns from commodity markets for farmers. Animal protein Beef Cattle prices should remain high in the second half of 2014, due to a low supply of animals coupled with strong international demand. Prices should start to recede with the arrival of the rainy season as beef farmers utilise grass as a lower cost animal feed to finish cattle. Brazilian beef exports have increased considerably from January to August 2014 compared to last year, according to the Bureau of Foreign Trade (Secex). Russia and Hong Kong are the main destinations. Chicken and pork The expectations for the chicken meat market continue to be positive. The Brazilian Association of Animal Protein (ABPA) projected a 3% growth in exports in 2014, compared with 2013. Among the major consumer markets of Brazilian chicken are: China which recently licenced five new Brazilian export plants, Venezuela, which also increased purchases of Brazilian beef, and Russia, which, after imposing bans on the United States and European Union originated protein began to source more products from Brazil. The high demand had a positive impact on prices in the month of September and the expectation is that they will continue in an upward trend. Producers should benefit from both high selling prices and lower feed prices. The Pork market is currently balanced. The opening of the Russian market has not an impact to date. However, it is expected that demand will increase as a result of higher prices of beef and chicken.
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Brazil
Overview Agribusiness continues to expand within the Brazilian economy. The Ministry of Agriculture has forecast that the gross value of agricultural production in 2014 will be a record US$ 175 billion*, a 2% increase from 2013. Soya remains the flagship for the sector, generating almost US$ 40 billion of income, followed by beef which generated US$ 27 billion and sugarcane US$ 20 billion. This is in contrast to the industrial sector which had a decline of 0.1%.
* exchange rate: 1 USD = R$ 2.5

Australia
Dairy Bega (an Australian dairy Company) have formed an agreement with Chongqing General Trading Group of China (CGTG), to supply Bega-branded long life milk to China. In addition to this deal Bega and CGTG see this as the basis for a broader commercial relationship in the future, the company said in a statement to the ASX, signifying Bega’s intent to capitalise on the strong demand for dairy products in China. There are around 32 m people in the Chongqing region and CGTG has close to a 50 per cent share of the market in food and general merchandise so this initial deal could prove extremely significant and not just for Bega: other large dairy exporters, such as Warrnambool and Murray Goulburn are eager for further deals of this kind.

Inputs Fertilizers The decision by Brazilian farmers to forward buy inputs for the 2014/15 season during the first half of 2014, due to lower fertilizer prices, caused sales to increase by 6.9% compared to prior year. Sales in the second half of the year are expected to be lower due to falling commodity prices and hence a lower incentive for farmers to use additional fertiliser.

Sugarcane complex The sugar processing plants located in south and central Brazil will cease milling for the season at the end of October which is 4 to 6 weeks earlier than average. The severe drought that affected the region reduced sugarcane supply. Mills are now carrying higher stocks of sugar and ethanol in anticipation of a longer idle period and up lift in prices later in the year. Sugar prices are on a downward trend currently due to the high availability on the international market. Brazil is at the peak of harvest and both Thailand, a major exporter of sugar, and China, the leading importer, have high inventories which is hitting Brazilian sugar exports. To stimulate domestic demand incentives for the sector have been approved such as the increase in the percentage of ethanol added to gasoline, from 25% to 27.5%, which will be effective from November 1st. Another measure was the extension of Reintegra for exporters of sugar and ethanol, this program returns to entrepreneurs up to 3% of revenues from exports of manufactured products. Grains Soybeans, corn and wheat The United States Department of Agriculture (USDA) estimated an increase in world production of soybeans, corn and wheat, which caused a drop in prices on Global commodity markets. In Brazil, the fall in prices will impact the value generated from the exports of soybeans and their derivatives (oil and meal) which is forecast to reduce by 20%, according to the Brazilian Association of Vegetable Oil Industries (Abiove). However market analysts predict that soybean producers will have a positive return in the 2014/15 season, even with the decline in prices. Coffee The National coffee Supply Company (Conab) is forecasting production of 45.1 m bags of coffee in the 2014/15 crop year, a reduction of 8.2 m bags. The reasons for the drop are due to a severe drought in São Paulo and Minas Gerais, the main producing states, frosts in the state of Paraná, and reversal of biannuality in some regions. As a result, the International Coffee Organization (ICO) has projected an overall deficit in Global production in 2014/15 of 4 to 5 m
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bags. Improved prices will improve sentiment in Brazil as producers have encountered problems of price and production in recent years. Jose Rezende

M&A activity BayWa AG, a major German agricultural corporation, acquired the remaining 40% of shares from Bohnhorst Agrarhandel GmbH. With this acquisition, BayWa continues to strengthen its position as national and global player in the trading of seeds, fertilisers, animal feed and crop protection. Bayer CropScience acquired the seed business of soybean producer Granar S.A. (Paraguay) in order to get access to the local soybean seed market in Paraguay. The acquisition enables Bayer CropScience to enrich its product portfolio and expand the footprint on the Latin American market. Stephan Dumpelfield

Canada
Canada has inked a trade pact with South Korea, marking its first free trade agreement in Asia. The Canada-Korea Free Trade Agreement is expected to increase Canadian exports to South Korea by about 32% and boost Canada’s economy by about $1.7B. More importantly, it will narrow the trade advantage available to competing countries, including the U.S, Australia and the EU, who already have free trade agreements with South Korea. Canadian agriculture exports to South Korea currently face high tariff rates, which averaged about 53% in 2012. The Agreement will result in the elimination of tariffs on about 87% of agricultural tariff lines and put Canada on a more level playing field with South Korea’s current free trade partners. Final negotiations between Canada and the EU on the Comprehensive Economic and Free Trade Agreement (‘CETA’) also concluded recently. As announced earlier this year, about 98% of the EU’s 9,000+ tariff lines will become duty-free when CETA enters into force in early 2016. A majority of the duties will be eliminated immediately, with some removed over a period of seven years. Lori Robidoux

India
Agricultural output India’s agricultural output in 2014 is expected to be lower than recent years because of delayed and deficient rainfall and a reduction sown area. Kharif (crops grown during the monsoon season) production is estimated to be about 120 m ton in 2014 which is lower by 9 m ton from the record harvest of last year. Among the major kharif crops, rice output is expected to be 88 m ton, about 4 m ton lower than last year, while the yield of coarse cereals is expected to be 27 m ton, a decline of 5 m ton compared to last year. The net sown area under coarse cereals declined by 18.56 lakh hectare. Cotton output is also set to go down by 2 m bales from last year’s record of 37 m bales. The area covered by kharif crops stands at 1,01.5 million hectares, a decline of 2.5 million hectares from 2013. Indian Government commitment to agriculture India’s Newly Elected Prime Minister of India Mr. Narendra Modi has emphasized that the government’s policy should be focused on increasing farmers’ income and asked scientists to take scientific technology to the field to help imporve crop productivity. The Prime Minister was of the view that farm income was key to developing the sector. Further, he believes agriculture technology can play an important role in increasing farm productivity to meet the growing food demand of the country. Ajay Kakra

Germany
Slowdown in the food industry Due to stagnating sales and decreasing export prices, the German food industry generated ca. EURO €14.9 bn in July 2014, about 1.2% less than July 2013. However, food manufacturers expect a slight recovery due to a good 2014 harvest and a development of export markets. German production and egg imports increase In spite of the rapid expansion in egg production by 29% from 2010 to 2013, Germany is still the largest importer of eggs in the EU (Imports up 21% compared to last year). The Netherlands are the main source at 70% of German egg imports, followed by Poland and France.

Ireland
Dairy and beef price pressure The pressure on both dairy and beef prices prevails. Currently the prices for the main dairy commodities are 7 percent below last month, however, market analysts anticipate that Chinese buyers will re-commence purchasing next month while the disruption caused by the Russian ban should begin to be absorbed by the market in the months ahead as international traders re-align themselves in response to the ban. Globally the underlying demand growth for dairy remains strong. Dairy processing investment Dairygold, one of the major Irish Dairy Co-operatives, is to invest EUR€117m in two new plants in Mallow and Mitchelstown in Cork. The Dairygold expansion follows major expansions of dairy processing capacity by other leading Irish operators including Kerry Group and Glanbia. Dairygold estimates that milk production amongst its 3000 suppliers will increase significantly from 941m litres currently to 1.5 billion litres in 2020. The National Dairy Council (NDC) noted that Ireland has historic opportunities given the abolition of quotas by Brussels in 2015 and this could be worth EUR€1.3billion per year to the Irish economy with the potential to create 15,000 additional jobs across the supply chain from farm gate to dairy processors. M&A On the M&A front the Irish Dairy Board (IDB) acquired a Spanish pizza cheese factory from Luxtor SA, a subsidiary of Telepizza, the fifth largest pizza chain in the world (IDB is responsible for circa 60% of Ireland’s dairy exports last year it had a turnover of EUR€2.12 bn). There are press reports that Dawn Meats an Irish meat processing company is to acquire a significant minority stake in a French rival Elivia. This is in line with PwC discussions with a number of Irish beef processors who wish to expand beyond their current markets and are seeking opportunities in other European markets. Jimmy Maher

agribusiness leaders, representing the poultry, dairy and dates sectors, attended the roundtable in Riyadh to discuss opportunities for solar power deployment in the agribusiness sector. A number of farm operations are located in remote areas where access to grid electricity is limited or unreliable, resulting in a heavy reliance on diesel generators to provide reliable power for poultry house coolers, farm irrigation pumps, and other fixed farm equipment. While diesel fuel is relatively inexpensive in Saudi Arabia, it is not being produced in sufficient quantities to meet the future needs of the agribusiness sector. The roundtable participants agreed that hybrid solardiesel solutions will be required to provide adequate power to rural farm operations. Several of the leading Saudi agribusiness firms expressed interest in working with energy service companies (ESCO) to negotiate long-term contracts for hybrid diesel-solar power generation. Saudi Arabian poultry sector The Saudi Agricultural Development Fund is launching the second phase of a national initiative to develop the poultry sector in Saudi Arabia. PwC, in partnership with experts from Wageningen University (based in the Netherlands), is assisting the Fund in several areas: design of a national poultry board, development of a 10-year national strategy for the poultry sector,

and design of a national poultry disease management centre. The government’s objective is to stimulate domestic investment in poultry production to increase domestic self-sufficiency from 45% today to 65-70% in 10 years. Given the high growth in domestic demand for poultry products, achieving this target will require domestic producers to double their production capacity in the next 10 years. Mark Webster

Netherlands
Dairy Royal FrieslandCampina (‘RFC’) is about to form a Joint Venture (JV) with Chinese Huishan Dairy and to invest EUR€114m in China. EUR€90m will be used for a stake of 50% in the dairy company Xiushui. The remaining EUR€24m will be used to buy shares Huishan. The JV creates an integrated supply chain for baby food. The JV will introduce a new baby food brand to the Chinese market. Flowers The Dutch flower industry, in the first 8 months of this year, exported more flowers and plants compared to the same period last year. The increased demand originated from Germany, France and Poland and compensates the decrease of exports to Russia. Marco Jansze

MENA
Solar Energy In September, PwC hosted a roundtable on sustainable agriculture in partnership with the Saudi Arabia Solar Industry Association. A number of
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New Zealand
Dairy decline The Global Dairy Trade index declined another 7.3% in the first auction of October, with whole milk powder down 10% and skim milk powder down 2.7%. The index has now fallen 51.4% since it began its decline in February 2014. Consequently, New Zealand milk processors have reduced their milk price forecasts for 2014/15. Fonterra has revised its forecast farm gate milk price down to NZ$5.30 per kg of milk solids (kg/MS), but increased and widened its dividend forecast from 25c to 35c. Chairman John Wilson said the lower forecast farm gate milk price reflected continuing volatility, while some relief has been provided by the weaker NZ dollar (down 11% against the US dollar since July 2014). Dairy industry group Dairy NZ said most farmers would cope with the lower prices as long as there was not another drought, but around a quarter of farmers may struggle to pay their farm working expenses and interest payments. According to Dairy NZ two-thirds of dairy farms have working expenses of between NZ$3.25 and NZ$4.75 kg/MS. However, after financing payments, the average cash costs on-farm increases to around NZ$5.40 kg/MS. Rural services firms are expecting reduced spending as a result of the lower milk price being paid at the farm gate. According to rural supplies firm PGG Wrightson CEO Mark Dewdney, farmers are already being more conservative in their purchases and there are fewer rural properties being put up for sale. ‘We’re seeing caution creep in to the dairy market and the discretionary spend slowing. We’re seeing real estate

listings slowing in dairy and very few herd sales. It’s just a function of people being a bit cautious.’ However, the slowdown in spending would be gradual, he said, with the NZ$8.40 kg/ MS from 2013-14 still flowing through from farmers’ pockets. Sheep and beef prices for exporters were strong, meaning those farmers were confident and able to spend on rural services and supplies. Fertiliser company Ravensdown said that while there was no slowdown in demand for fertiliser products yet, rural spending was expected to slow. Other news Fonterra wants to establish an equity partners’ fund (EPF) before the end of the year to source capital from global investors for farmers in New Zealand and Australia. CEO Theo Spierings said it wants to give flexibility to farmers to ‘share-up’ following concerns that the 8% growth in milk production this season could mean some farmers will have to borrow significantly to meet the share standard. Fonterra’s 10,600 farmers are required to hold one share for every kg of milksolids supplied each season. Mr Spierings says the EPF was another tool to give farms access to the equity they need to grow. The size of the fund is yet to be determined. In other dairy news, Synlait Milk has announced that it has obtained approval by the Certification and Accreditation Administration of the People’s Republic of China to manufacture retail-ready infant formula for export into China. The approval comes after it announced plans to take a quarter-stake in Sichuan New Hope Nutritional Foods Co to gain a direct interest in a Chinese infant formula brand. Craig Armitage

South Africa
Astral Foods post strong H114 results South African chicken producer Astral Foods posted a significant operating profit jump in H114, the recovery for the company came after months of tough operating conditions due to high feed prices and cheaper imports from Brazil. The company posted a 260% increase in operating profits. Most of the jump was linked to lower feed costs as revenues increased by 11.0% to ZAR4.7bn, compared to ZAR4.2bn in H113. Astral Foods indicated that it initiated a phase of normal bird replacements after culling stocks on reduced profitability previously. Improved profits were also due to the company’s repositioning into higher margin products, such as fresh sales. Poultry imports After months of disputes South Africa decided to increase duties on whole chicken imports. This is aimed at supporting local margins for producers and halting recent job cuts in the on imports of whole birds to 82%, the maximum allowed, from 27%, on chicken-carcasses to 31% from 27% and on boneless cuts to 12% from 5% according to local industry sources. The duties apply to all shipments except immediately. The duties will target mainly cheap cuts imported from Brazil, as local producers accuse Brazilian producers of selling below local production costs. The decision will raise prices for consumers, which put downside risks on our forecast for consumption.

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As the country’s poultry producers have launched a formal investigation for dumping on the domestic market from large imports (mainly Brazil) we believe import duties and a weaker rand will help local producers to increase competitiveness. In fact, after the dumping investigation was launched by the South African Poultry Association, the International Trade Administration Commission of South Africa imposed interim anti-dumping duties of 6% to 63% on frozen whole chickens and boneless cuts from Brazil. Albre Badenhorst

Therefore UK dairy farmers believe that in meeting the UK consumer market requirements they get penalised by global commodity prices which the vast majority of the UK industry does not supply. Unfortunately dairy price cuts are set to continue as Global dairy rebalancing continues until at least spring 2015 with a long winter of discontent forecast for the UK dairy industry. Harvest 2014 The UK cereal harvest was completed in September with yield and quality across oilseeds and grains reported as above average due to good growing and harvesting weather conditions throughout the season. The harvest got underway one to two weeks earlier in July than normal due to fine ripening conditions that took place during the British summer. UK output across key cereals was as follows with variance to 2013 harvest in brackets, 12.1m ton Wheat (-9%), Barley 7.1m ton (+ 29%) and Oil seed rape 2.5 m ton (+20%). Prices across all cereal categories dropped substantially versus 2013 levels (On average Wheat -35%, Barley -17% and Oilseed Rape -20%) which was in line with Global trends, and this will feed through to profitability and planting decisions for the 2015 season. Scotland decided Finally on 18 September 2014 Scotland voted to remain part of the United Kingdom, as part of the campaign the UK Government made commitments for further devolution of powers to Scotland in return for remaining in the Union. The UK Government will shortly produce a paper setting out these proposals. The debate on devolved powers to Scotland and other parts of the UK as well as Britain’s relationship with the EU is set to be a significant aspect of the political discourse in Britain in the lead up to the general

election on 7 May 2015. All participants in the agriculture and food industry will be watching developments closely in the coming months. Liam Hennigan

USA
Record U.S. Corn Production in 2014 The U.S. Department of Agriculture (USDA) has forecast record U.S. corn yields this year as warmer temperatures, longer growing seasons, more precipitation, and higher atmospheric carbon dioxide levels have enhanced crop output. In its August crop report, the USDA projected U.S. corn production would be more than 14 billion bushels and will break 2013’s record corn crop. The 2013 U.S. corn crop of 13.9 billion bushels was almost a billion bushels above the prior record. The USDA also stated that the 2014 crop is of very high quality. This increase in supply is expected to lower costs for a variety of products including animal feeds, consumer food products and biofuels. Soybean production is also expected to be at a record high this year. USDA Expands Access to Credit The USDA has committed that it will increase farm loans by expanding eligibility and raising lending limits to assist more beginning and family farmers. As part of this change, the USDA is raising the borrowing limit for the microloan program from $35,000 to $50,000, is simplifying the loan process, and is expanding eligible farms and ranches to reflect changes in the way family farms are owned and operated. The microloan changes will allow beginning, small and mid-sized farmers to borrow an additional $15,000 in loans using a simplified application process with up to seven years to repay. Sean Gaffney

UK
Dairy dissatisfaction UK dairy farmers have begun to protest at dairy processing plants in October. This is in response to an average 20% reduction in farm gate price since spring 2014 moving from GBP 35 pence per litre (ppl) to GBP 28 ppl. Average UK production cost is circa GBP 28 to 30 ppl. Prices have reduced in line with global dairy commodity benchmarks over the course of 2014 as a re-balancing of supply and demand takes place following a surge in wordwide dairy production by circa 7% in 2013 with demand growth of 2.5%. In addition Russian sanctions have eliminated a key export market for the EU dairy industry and this has left a surplus of product looking for a destination market other than Russia. However UK dairy farmers feel aggrieved by this for two reasons. One, the majority of UK dairy production is consumed domestically in fresh and added value consumer products and two, typical UK dairy farmers operate a ‘year round’ level production system to supply these products which has a higher production cost associated with it than the seasonal system operated by dairy commodity exporters such as New Zealand.

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Did you know?
PwC has:
An extensive global network
• We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services.

An Agribusiness Service Centre in Argentina
• Located in Rosario, at the heart of the Pampas region, PwC Argentina has opened an Agribusiness Service Centre to provide professional services to the agribusiness community. Argentina is a major player among food producing countries and agribusiness is an important strategic contributor to the economy. • We believe there is extraordinary growth potential in the long term for further developing agricultural activities. The Agribusiness Service Centre provides value added services to our clients combining strong technical skills with an in-depth industry insights: • Regional agribusiness clients are better served by coordinating activities with the Agribusiness Centre in Ribeirao Preto, Brazil. • A Research and Knowledge Centre has also been developed to keep our technical staff and clients updated on main agricultural issues. Specific sub-industry reports have already been developed as well as quarterly agricultural situation reports.

Extensive Agribusiness team in India
• We have a 13 member team based at New Delhi, Mumbai and Pune. Apart from working in India, the team members have experience of working in Nepal, Bhutan, Bangladesh, Tanzania, Ghana and Ethiopia. The team brings vast experience and knowledge of the Agricultural subsectors such as agri-retail, food processing, agri-marketing, farm inputs, farm machinery, warehousing and cold chain infrastructure, agri banking etc. • Over a period of time the team has been engaged with various private, public and multilateral agencies, advising on supply chain management, project management, value chain assessment, monitoring and evaluation, business plan and growth strategy development, investor/partner search, policy planning and implementation support, technical due diligence, and transaction advisory.

A dedicated agribusiness service centre in Brazil
• Based for almost 40 years in the northwest region of São Paulo, PwC Brazil is well known for its expertise in serving the agribusiness sector. For this reason, and believing in the growth of Agribusiness in Brazil, PwC has expanded its activities in this industry, creating a dedicated PwC Agribusiness Excellence Centre in 2007. • Through this centre, Agribusiness clients in this industry throughout Brazil are served in the areas of audit, tax consulting and business consultancy by a team of professionals trained and updated on major issues and industry trends. We have hired dedicated agribusiness professionals, such as agronomists, foresters, veterinarians, agro-economists, environmental managers and others, to add value and help in the understanding of the real needs of our customers. • We have also created an Agribusiness Research and Knowledge Centre, in order to keep our staff and clients updated on the main issues and trends. With a method specially developed by PwC, analysts study the technical management of the main crops in Brazil, perform environmental, industry and competitiveness analysis, and also studies about the main players operating in each agro-industrial system analysed. The Agribusiness Research and Knowledge Centre is also able to provide market intelligence services and support our professionals in evaluating investment options in the agribusiness industry.

Extensive food security expertise
• PwC has helped at least four different governments formulate comprehensive food security strategies. These have looked at the key risks and exposures those countries face with regards to food security; changing food supply/demand dynamics locally and globally; issues by key food commodity type; assessing current plans to address current issues; formulation of new initiatives to solve key food security risks, both in the short and long term; overall cross-government coordination and implementation plans. A key emphasis of the work was making sure the plans were practical and involved close alignment between government and the private sector.

Dedicated agribusiness practice in MENA
• PwC has the only dedicated agribusiness practice in the MENA region among major consultancies. We offer a full range of advisory services to food companies, investors and government agencies. We provide advice on investment and partnership strategies, technical and financial feasibility studies, agricultural and food security policies, corporate transformation initiatives, and supply chain optimisation. We cover a range of crops and animal food production, and we can help companies with market expansion, product portfolio diversification, and positioning along the value chain.

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Just completed a global agribusiness review for New Zealand Trade and enterprise
• NZTE, in partnership with the Ministry of Economic Development, the Ministry of Foreign Affairs and the Ministry for Primary Industries, commissioned PwC to explore the opportunity to take New Zealand’s pastoral production system and related areas of competitive advantage into specific international markets, namely South America and China. The research is part of a wider programme of work focused on maximising international opportunities for companies within the agriculture industry. The report was divided into two parts. Firstly a comprehensive background analysis, broken down by country; with both production opportunity analysis and value chain analysis for each of the seven countries analysed. Secondly, an executive summary outlining five areas of opportunity for New Zealand agribusiness. To learn more and download copies of the report visit: http://www.nzte.govt.nz/featurescommentary/in-brief/pages/globalagribusiness.aspx.

Commodities risk management expertise
Over the last 4 – 5 years the world has witnessed a period of sustained energy and commodity price volatility, whether this be fuel oil, gas or electricity, metals such as aluminium, steel or copper, or agricultural products such as cotton, wheat or sugar. Commodity price risks are also being quickly transferred through the value chain, for example a company buying plastic will be exposed to the volatile price of oil. This shift brings major implications for businesses across many sectors. Commodity price volatility is increasingly affecting the profits, cash flows and share prices of companies that use or consume energy or raw materials. It is difficult to think of a business model that isn’t in some way exposed to commodity price volatility – it’s just a matter of how much. We are seeing a continued trend across corporates, particularly in the consumer and retail goods sectors, towards the implementation of commodity trade capture, valuation and risk management systems. These systems can be vital in ensuring sound controls in an area of

high inherent business and reporting risk. However, they can be complex to implement, and therefore require careful selection, project management and integration into the business processes and other systems. We have a dedicated team experienced at doing this.

Efficient tax structure expertise
Increased competitive pressures and challenging market environment continue to force local, regional and global market players to centralise certain functions. This applies to centralised trading and can be used to plan the tax position of agricultural groups. PwC can help with the centralised, cross-border trading and risk management transactions from a tax perspective, having particular regard to transfer pricing (TP) and thin-cap (TC). PwC has unique experience with respect to advice on corporate tax compliance, and assistance in planning tax efficient trading structures, financing and transactions. In addition we can help with audits, dispute resolution and Advance Priced Agreements to minimise related tax risks.

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Sustainability and climate change experts
By 2050 the world’s population is projected have to grow to approximately 9 billion. As competition for agricultural commodities and inputs intensifies and our ability to satisfy this demand is increasingly constrained by economic, social and environmental factors, innovative solutions will be required to ensure that we make better, more efficient, use of resources and in some cases find more sustainable alternatives whilst increasing productivity and driving economic prosperity. PwC is working with organisations including agribusiness, the wider private sector, governments, NGOs and multilateral organisations on a range of sustainability and climate change related projects. Recent projects include; climate change risk mapping for soft agricultural commodity sourcing; sustainability strategy support for agribusinesses; evaluating the business case and socio-economic benefit for local sourcing of agricultural raw materials, climate change training for African agri-businesses, the development of a methodology and carbon calculator for understanding emissions from small holder agriculture in Africa, and assessments of market and financial opportunities for climatesmart agriculture.

well as crisis management, financial restructuring and company turnaround, and administration/liquidation services. We can: • Deliver forensic investigations to identify what may have gone wrong, the potential consequences, and provide support in claims management. • Perform risk profiling and assessment of the supply chain to quickly identify and quantify key sources of risk, dependency and vulnerability. • Assess the effectiveness of the control environment and audit approach and re-perform audits to provide assurance as required. • Deploy risk monitoring solutions to ensure compliance with agreed standards. • Develop robust supply chain risk management methodology, tools and capability. • Redesign supply chain structure, strategy and organisation to optimise balance between cost and resilience.

and form a framework for the development of industry best practice across the agricultural supply chain in China focusing primarily upon Food Safety. The signing ceremony was held in Beijing to coincide with Prime Minister John Key leading the inaugural New Zealand China Council Partnership Forum, in celebration of the 40th anniversary of diplomatic relations and the fifth anniversary of the China New Zealand Free Trade Agreement. http://www.asurequality.com/news.

A focus on inclusive businesses in the agricultural sector
An established Nigerian bank seeking to catalyse a whole new approach to smallholder farming and rural banking, a biscuit manufacturer developing a commercial approach to cassava farming in Malawi, and a summer tomatoes contract farming venture led by a Bangladeshi agribusiness conglomerate. Over the past three and a half years a PwC UK led team has worked with these and other exciting companies to help them develop commercially viable business models that are inclusive of the poor across Africa and Asia. Results, findings and lessons from their work on the UK Business Innovation Facility pilot have been documented in seven case studies, with a final report available here bit.ly/BIFfindings.

PwC New Zealand involved with developing a ChinaNew Zealand Food safety joint venture entity in China
As outlined earlier, China consumer trends of higher-protein diets and lingering distrust of domestic food sources have not only increased New Zealand’s beef and lamb exports, but have generated further opportunities for New Zealand to assist with developing food safety practices in China. New Zealand’s Government-owned food safety agency, Asure Quality, and PwC New Zealand last month signed a collaboration framework agreement with China Mengniu Dairy Company and COFCO Corporation to investigate the development of a ChinaNew Zealand agribusiness service and Food Safety Centre of Excellence in China. The objectives of the joint venture entity are to introduce total management and operational risk management systems to the Chinese Agriculture Industry based upon the New Zealand agriculture sector model,

Extensive forensic skills and supply chain experience
We have carried out independent investigations and advised on governance improvements in some of the highest profile reputational crises of recent years. We believe the benefits of a robust, independent review of the facts are considerable. Our specialists help companies respond decisively – a key first factor in maintaining trust and protecting shareholder value. We work with clients to define and implement enhanced supply chain risk management strategies and capabilities. This can range from conducting supplier risk assessments and audits, supply chain and procurement strategy and organisation redesign, deployment of automated monitoring technology as

10 | Global Agribusiness | PwC

Publications
Wine Insights – New Zealand
PwC produced the NZ Wine Insights publication to follow-on from the work undertaken for the Strategic Review of New Zealand Winegrowers in 2011. The publication comments on various aspects of New Zealand wine’s competitive advantage and provide insights and observations into the New Zealand wine industry to inform members and stakeholders in relation to aspects of the rapidly changing environment the industry operates in. Excerpts from the report include: • While Vintage 2012 presents a challenge in terms of growing international markets due to the significantly reduced volumes produced, the medium to longer term outlook presented in the Strategic Review that by 2021 sales potential for New Zealand wine could grow by 170m litres to reach almost 400m litres (were it unconstrained by supply) to be realistic given the strong growth in export market demand for New Zealand wine and very positive expectations of future growth in key markets in. • The New Zealand wine industry remains relatively young in its development compared to many other wine producing nations. The industry has experienced rapid growth and continues to evolve, with substantial structural change occurring in various areas. The industry will continue to develop and evolve, which will present both opportunities and challenges. Initiatives aimed at driving efficiency gains and cost reductions, while not impacting quality, should be positive for the industry. Furthermore consolidation opportunities remain. To learn more and download copies of the report please visit: http://www.pwc.co.nz/ publications/new-zealand-wineindustry-insights/

Global Co-operative report
PwC completed an extensive report on the Top 100 agricultural cooperatives worldwide and the critical issues affecting them. The cooperative industry is currently facing new challenges. With their unique organisational model and local footprint, cooperatives are faced with strategic development choices. They must become more international, through mergers and alliances, extending their market involvement both upstream and downstream, if they are to fend off stiff competition from non-cooperative companies in the food industry. They will also have to rethink their financing and governance to increase their competitiveness and safeguard their unique model. Although cooperatives face the same challenges as non-cooperative companies, they also aim to preserve a sustainable and collaborative model over the long term. However, they must continue to grow in order to stay in the race and finance their expansion plans. This will require a new mindset, in terms of the way they deal with risk, profitability, strategy and skills. For a copy of the full (c.100 pages) report, please contact: Ludivine Allardon +33 1 56 57 10 13 ludivine.allardon@fr.pwc.com A 10 page executive summary can be downloaded here: http://www.pwc.fr/cartographieet-grands-enjeux-du-mondecooperatif-agricole-a-lechellemondiale.html

Brazilian Agribusiness Report
In Brazil we have recently published a series of documents outlining the sector and its characteristics: • Doing Agribusiness in Brazil: an in depth look at the agribusiness industry • Agribusiness highlights • Agribusiness overview: key numbers and facts.

PwC involved in major AsiaAfrica Business Forum
The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Government of India organised the first ever Asia-Africa Agri Business Forum from February 04 – 06, 2014 in New Delhi. PwC was part of this initiative, as a knowledge partner. We produced a paper ‘Unlocking the food belts of Asia and Africa’ highlighting the potential of the agricultural sector in both continents, and the best areas for collaboration. Event details The event was targeted at tapping the tremendous business opportunities between Asian and African continents in the agriculture, agribusiness and food-processing sectors, and had strong political support: the Indian President inaugurated the forum, with agriculture ministers from many Asian and African countries attending. Leading international organisations like African Development Bank, Asian Development Bank, World Bank, World food programme, Department for International Development (DFID) brought a global perspective. It provided a unique business platform for industry leaders, policy makers, governments and other important stakeholders to collectively address the issue of food security and the opportunities to engage with each other while looking at the huge potential for growth, development and business.

PwC | Global Agribusiness | 11

Publication: Unlocking the Food Belts of Asia and Africa Our paper analyses the major agriculture sub-sectors of both continents in terms of production, demand and supply, export potential and processing capability, in order to identify various business and investment opportunities. It also highlights various headwinds to development, in areas like market policies, increasing agriculture input accessibility, access to finance, infrastructure enhancement, skill development, etc. with suggestions on how to overcome these challenges. It also reviews various successful case studies across different countries in Asia and Africa which highlight that good policies, support from government and a favourable business environment can promote agri-business. We have highlighted that forming partnerships between Asian and African countries of Asia and Africa could bring immense opportunities for development and value creation and transform agribusiness in both continents. We discuss various partnership models between Government and Private sector, to bring efficiency and improvement in key areas such as skill development, agriculture research, investment in agriculture and agricultural operations. Click here for a link to the document.

Agribusiness Insights Survey – South Africa
PwC’s annual Agribusiness survey is with a group of agribusinesses with operations mainly focused on delivering agricultural and related services to primary producers. The aim of the survey is to provide the insights of business leaders and the benchmarking of their financial data to add value to the agricultural industry. The sector is confident about its growth prospects over the next few years amidst a raft of regulations, wage negotiations, land reform and the global economic uncertainty. The main reason for growth expectations as indicated by CEOs is new joint ventures and strategic alliances. This sentiment is also echoed in the Confidence Index of the Agricultural Business Chamber (Agbiz) and the Industrial Development Corporation (IDC). This index indicated a further increase in the agribusiness confidence levels in the fourth quarter of 2013. CEOs of agribusinesses are also very positive towards the possibility of expansion into the rest of Africa. 70% indicated that they would pursue such opportunities. Africa is increasingly becoming a preferred investment destination and is said to represent the last frontier in global food and agricultural markets with its large percentage of uncultivated fertile land and sufficient water resources, according to a recent report issued by the World Bank. The report calls on governments to work side-by-side with agribusinesses, and to link farmers with consumers in an increasingly urbanised Africa. The report is available onlne: http:// www.pwc.co.za/agri-business

PwC Netherlands report on megatrends affecting Agribusiness
We discuss five megatrends that heavily impact each link of the sector’s value chain, and explore the drivers of this change and the long term outlook for the sector. Demographic change leads to an aging workforce and fewer students opting for a career in farming and food engineering. In addition, consumers spend less and spend differently – for example on healthier foods, or on smaller packages for singles. Accelerating urbanisation brings expanding cities and farming in closer proximity, shifting the sector’s focus in stakeholder management from ministers to mayors. Cities also face logistical issues how to bring food in – and waste out. Technological advances increased yields and reduced use of energy and water, while food processing extended shelf life, reduced waste and widened variety of products. Logistics enable year-round availability of fresh products. Consumers share recipes on social media – and concerns on food safety. Resource scarcity contests the way we produce, source and consume. Phosphate for fertilisers, energy for greenhouses, or cocoa for food manufacturers abundance is not obvious. Also, the way we ship, store, sell and dispose food needs ethinking. The shift in economic power increases living standards in highgrowth markets, providing opportunities for agrifood companies to further expand their non- European footprint. Click here for a copy of the report

12 | Global Agribusiness | PwC

Calendar of events
October
22nd – Yara International Q3 results 22nd – Dow 22nd – Crop Monitoring in Europe Bulletin, Monitoring AgriculturalResources (MARS) Unit EU 24th – BASF Q3 results 27th – Fresh Del Monte 28th – AGCO 28th – Du Pont 28th – GEA Group Q3 results 29th – Kraft Foods Group 29th – Pilgrim’s Pride 29th – Glanbia Q3 results 30th – International Grains Council monthly market report 30th – Bayer Q3 results 30th – Bunge 30th – Kellogg 30th – Mosaic

November
3rd – CF Industries 3rd – Terra Nitrogen Group 4th – Agrium Q3 results 4th – Archer Daniels Midland 4th – Associated British Foods Full Year results 4th – Global Dairy Trade auction 5th – Chiquita brands 6th – Kerry Group Q3 results 6th – UN FAO Cereal supply and demand brief 10th – Dean foods 17th – Tyson foods 18th – JM Smucker 25th – Hormel foods

December
1st – Diamond foods 16th – General mills 17th – ConAgra foods

PwC events
• PwC India organized the Workshop on Investment Opportunities in Orissa Poultry Sector at Bhubneshwar, Orissa on September 02, 2014. The workshop was conducted as a part of recently mandated project on ‘ Orissa Inclusive Growth Program’ a project funded by International Finance Corporation (IFC). The objective of the workshop was to bring together potential investors related to the poultry sector. • PwC India is also planning to hold a workshop on interested stakeholders for investing in Rice Industry of Orissa State. The workshop is tentatively proposed in November 2014. • PwC is sponsor to the Sunday Business Post Conference on the Future of Food Summit to be held in the Croke Park Conference Centre, Ireland on the 23rd October where both Ministers from the Republic and North of Ireland will be among the speakers.
PwC | Global Agribusiness | 13

% change
% change
(40%) 10% 20% 0% (30%) (20%) (10%)
20% 10% (50%) (30%) (10%) 30% 40% 0% (40%) (20%)

% change

(20%) 80%

20%

40%

60%

0%

One year

Corn
Corn

One month

Prices

Three month

Wheat
Wheat

14 | Global Agribusiness | PwC

Source (all graphs): Datastream

Soyabeans
Soyabeans

Cocoa
Cocoa

Coffee
Co ee

(60%)

(40%)

Corn Wheat Soyabeans Cocoa Co ee Sugar Cotton Wool Ammonia Natural gas Brent Crude Ethanol Gasoline Cattle Lean Hogs Milk Copper Gold Iron

Sugar
Sugar Cotton Wool Ammonia Natural gas Brent Crude Ethanol Gasoline Cattle Lean Hogs Milk Copper Gold Iron

Cotton

Wool

Ammonia

Natural gas

Brent Crude

Ethanol

Gasoline

Cattle

Lean Hogs

Milk

Copper

Gold

Iron

Corn, cents/bushel
900 800 700 600 500 400 300 200 100 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

Wheat, cents/bushel
1400 1200 1000 800 600 400 200 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

PwC | Global Agribusiness | 15

Soyabeans, cents/bushel
2000 1800 1600 1400 1200 1000 800 600 400 200 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

Cocoa, US$/mT
4000 3500 3000 2500 2000 1500 1000 500 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

16 | Global Agribusiness | PwC

Coffee, cents/lb
350 300 250 200 150 100 50 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

Raw sugar, cents/lb
35 30 25 20 15 10 5 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

PwC | Global Agribusiness | 17

Cotton, cents/l
250 200 150 100 50 0 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

Wool, Aus cents/kg
1400 1200 1000 800 600 400 200 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

18 | Global Agribusiness | PwC

S&P GSCI Lean Hogs
250 200 150 100 50 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

CME milk
250 200 150 100 50 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

PwC | Global Agribusiness | 19

Pork/Corn (rebased)
300 250 200 150 100 50 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

Milk/Corn (rebased)
140 120 100 80 60 40 20 0 01/01/2008

01/01/2009

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

20 | Global Agribusiness | PwC

Global Agribusiness contacts
Global coordinator Mark James
+44 (0) 20 7212 1869 mark.d.james@uk.pwc.com

Ireland Jimmy Maher
+353 (0) 1 792 6326 james.maher@ie.pwc.com

USA Thomas Johnson
+1 612 596 4846 thomas.r.johnson@us.pwc.com

Argentina Mariano Tomatis
+ 54 11 4850 4757 mariano.c.tomatis@ar.pwc.com

MENA Mark Webster
+966 11 211 0400 (Ext. 1555) mark.a.webster@sa.pwc.com

Sean Gaffney
+1 216 875 3275 sean.gaffney@us.pwc.com

Gustavo Barrichi
+ 54 341 446 8000 gustavo.h.barrichi@ar.pwc.com

Netherland Marco Jansze
+31 (0) 88 792 3133 marco.jansze@nl.pwc.com

Commodity treasury services Nick James
+44 (0) 20 7212 6550 nicholas.c.james@uk.pwc.com

Sebastian Azagra
+54 341 446 8000 sebastian.azagra@ar.pwc.com

Australia Craig Heraghty
+61 282 661 458 craig.heraghty@au.pwc.com

New Zealand Craig Armitage
+64 3 374 3052 craig.armitage@nz.pwc.com

Tax structuring Annie Devoy
+44 (0) 20 7212 5572 annie.e.devoy@uk.pwc.com

Romania Anca Scurtescu
+40 21 22 53 871 anca.scurtescu@ro.pwc.com

Szymon Wlazlowski
+44 (0) 20 7212 1889 szymon.wlazlowski@uk.pwc.com

Brazil Jose Rezende
+55 11 3674 2279 jose.rezende@br.pwc.com

Singapore Richard Skinner
+65 9823 3771 richard.skinner@sg.pwc.com

Luiz Barbosa
+55 16 2133 6694 luiz.barbosa@br.pwc.com

Sustainability and climate change Kieron Blakemore
+44 (0) 20 7212 4212 kieron.j.blakemore@uk.pwc.com

Daniela Coco
+55 19 3794 5400 daniela.coco@br.pwc.com

South Africa Frans Weilbach
+27 (21) 815 3204 frans.weilbach@za.pwc.com

Teresa Fabian
+44 (0) 20 7213 8309 teresa.fabian@uk.pwc.com

Canada Lori Robidoux
+204 926 2464 lori.j.robidoux@ca.pwc.com

Ukraine Olena Volkova
+38 (0) 56 733 5010 olena.volkova@ua.pwc.com

Supply chain and forensic investigations Fran Marwood
+44 (0) 20 7213 4709 fran.marwood@uk.pwc.com

France Yves Pelle
+ 33 (0) 299 231 705 yves.pelle@fr.pwc.com

UK Liam Hennigan
+44 (0) 7841 494011 liam.hennigan@uk.pwc.com

Matt Elkington
+44 (0) 20 7804 1417 matt.elkington@uk.pwc.com

Germany Stephan Dumpelfield
+49 (0) 541 3304 330 n.niedenhof@de.pwc.com

Mark James
+44 (0) 20 7212 1869 mark.d.james@uk.pwc.com

Craig Armitage
+64 3374 3052 craig.armitage@nz.pwc.com

Stephen Oldfield
+44 (0) 7710 388792 stephen.m.oldfield@uk.pwc.com

India Ajay Kakra
+91 124 3306029 ajay.kakra@in.pwc.com

Private Sector and International Development Carolin Scramm
+44 7808 105691 carolin.c.schramm@uk.pwc.com

Thomas Sengbusch
+44 (0) 7725 069448 thomas.sengbusch@uk.pwc.com

Sunjay VS
+91 124 3306171 sunjay.vs@in.pwc.com

Jack Newnham
+44 7889 521600 jack.g.newnham@uk.pwc.com

Cristina Bortes
+44 7769 941119 cristina.bortes@uk.pwc.com
PwC | Global Agribusiness | 21

www.pwc.com
© 2014 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 141016-115259-MJ-OS